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2024 Stock Market Outlook: What a Return to Normal Means for Stocks

James Demmert, chief investment officer at Main Street Research, says the AI-fueled bull market could be just getting started. Investors will get a fresh inflation reading, with implications for oanda review Fed policy as the markets heads into summer. The Zacks #1 Rank List is the best place to start your stock search each morning. It’s made up of the top 5% of stocks with the most potential.

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Potential candidates are not campaigning on drug pricing or “Medicare for All” as in prior cycles. This muting of political risks further supports our favorable outlook on this versatile sector ― one with defensive characteristics as well as attractive growth prospects amid increasingly brisk innovation, such as the GLP-1 “diabesity” drugs. The election is just one variable in the market picture this year. Others, like interest rates and earnings trajectory, are arguably weightier considerations. Looking across some typically “election-sensitive” segments of the market, green energy companies are giving greatest attention to the election with nearly 30% of firms making mention in Q4, as shown below.

Small-Cap Stocks Remain at Wide Discount to Large-Cap and Mid-Cap Stocks

Treasury bond neared 5% last fall, stocks sold off, dropping well into undervalued territory. However, this year’s “Santa Claus Rally” came early as long-term interest rates subsided in November and then the rally was boosted even further following the December Fed meeting. The market interpreted Federal Reserve Chair Jerome Powell’s remarks to indicate that not only is the Fed done hiking rates, but it is also now considering when to begin easing monetary policy.

With Stocks Fairly Valued, How Should Investors Position Themselves in 2024?

  1. In addition, we forecast interest rates across the curve will subside in 2024 and 2025, thus mitigating much of the refinancing risk.
  2. By category, for long-term investors, according to our valuations, value stocks remain the most attractive, trading at a 10% discount to fair value, while core stocks are trading into overvalued territory and growth are essentially at fair value.
  3. The other is by investing with AI by using an AI assistant to help with stock research, or by investing in an ETF run by AI.
  4. We forecast six interest-rate cuts over the course of 2024, double that of the Fed’s current projection.

And we do think being spun off from the broad company will actually pay dividends for this company in the future. We expect a lot of new product innovation will be able to help this company be able to start generating some better growth over time. And the company is spending a lot of money in operational efficiency improvements today, which we think will pay off and help improve its margins over the next several years as well. Some of the other sectors that are undervalued, I would note real estate and the energy sector, both trading at 8% discount. We see enough opportunities here that this would be a good area to overweight today. And real estate, I think, [is also] a good overweight, because a lot of those commercial real estate names got pushed down too far based on concerns of valuation for urban office space.

Strong Performance by Economic Stocks With Wide Economic Moats

Here’s where we are today as far as price/fair value by individual sector. Technology stocks following that 59% return last year has definitely moved into the overvalued territory in our view, now trading at a 9% premium to our fair value. This is a sector over the course of last year we started off as an overweight, went to a market weight, ended up, I think, going to an underweight at one point back to a market weight and now back to an underweight based on valuations. And then consumer cyclical kind of same as technology with as much as it moved up last year, now getting into that slightly overvalued territory.

Price/Fair Value of Morningstar’s U.S. Equity Research Coverage at Month End

So, another good one, I think investors should take a look at today. The opinions expressed are as of March 2024, and may change as subsequent conditions vary. The information and opinions contained https://www.broker-review.org/ in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy.

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V.F. Corp’s fourth-quarter fiscal 2024 results were affected by a tough operating environment, dismal wholesale performance and higher promotions. Vale’s margins will bear the brunt of higher input costs, particularly of diesel and freight. The recent decline in iron and copper prices due to weak demand in China is concerning. Increased competition in the electric and natural gas markets, significant government regulation and adherence to the same could hurt margins.

We do think that the Fed is going to start easing monetary policy this year, possibly as soon as the March meeting. So, going forward, we’ll probably start looking at the opposite. We’ll probably start looking at what’s happened in prior Fed cycles as they’ve been easing rates and how fast they’ve eased rates in the past. We saw a lot of those now turn into a lot of dislocations in the market and especially in the economy. And then the Fed, after falling behind in the inflation flight, had to then catch up and start raising interest rates very quickly.

A popular Wall Street adage “sell in May and go away” reflects the fact that the six-month period from May through October has historically been a relatively weak stretch for the market. In fact, since 1990, the S&P 500 has averaged only about a 2% annual gain from May through October compared to a 7% annual gain from November through April. In addition, the Commerce Department estimates U.S. gross domestic product grew just 1.6% in the first quarter, missing consensus economist expectations of 2.5% growth. The consumer price index—one key measure of inflation—gained 3.5% year-over-year in March. That was down from recent peak inflation levels of 9.1% in June 2022, but still well above the Federal Reserve’s 2% long-term target.

And our projection is that core PCE will hit 2% year over year by the second quarter of this year. So, once you’ve hit your inflation target on a year-over-year basis, that’s a long enough string of success that I think the Fed will feel quite comfortable cutting rates aggressively throughout the second half of 2024. I thought this was instructive, just to show for, by capitalization, how our fair values have compared to each of those capitalization categories over time.

In fact, it has averaged a 12.2% gain during those re-election years. The energy sector has the highest percentage of analyst “buy” ratings heading into 2024 at 64% followed by communication services at 62% and healthcare 59%. The consumer staples sector has the lowest percentage of analyst “buy” ratings at just 47%.

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